"I feel this body's been lied to about who did this, what it was for, and where the monies came from, why I don't know why a Budget Amendment was not brought for in January February in order to address this.""So I'm stuck." ..."So if the fiscal Department is able to just move money whenever they want, then what controls do we actually have?"I think this is a severe breach of the checks and balances for what we're supposed to give."He called what happened a "pattern." He noted that, according to page 25 of the audit, Gracedale had a zero fund balance to start 2025 and has a total operation loss of $38 million in two years. "How they're going to plug that, I don't know.""If you, as a private sector, did the same thing and publish it financial reports against it, you'd go to jail for, right?""You'd go to jail for it.""Because for the government, you can get away with it, but it's deceiving the public, it's deceiving this body financially with that. And we have to make decisions, they come forth with budget amendments, they want personnel, approval, so and so forth, how are we supposed to know? So this is, for me, is a complete lack of trust."
Barron's Defense
Fiscal Affairs Director Steve Barron was asked by Council member Jeff Warren to address Brown's indictment. "It's really, really simple," he said. He noted that the home currently is sitting on 10 months of receivables, and he informed Council when he presented this year's budget that the home is a challenge.
He noted that the transfers are authorized under an accounting principle known as a prior period adjustment, which is exactly what Brown did in 2014 when he was Executive.
Barron said he would prefer to have gone the budget amendment route but was unsure exactly what number to present. He added that prior period adjustments have only been done two or three times and accountants dislike using that tool. It was necessary at Gracedale because of an ordinance providing that once money is sent to Gracedale, it must stay there, and the county is unable to claw it back.
The Fiscal Director went on to say that the county has received an unqualified opinion in the external audit, which is the highest-level opinion the county can obtain. It also has the highest bond rating of all 67 counties.
In addition to waiting 10 months for reimbursements from Medicare and Medicaid, Barron noted that the Intergovernmental Transfer Grant that was supposed to come in two years may now take as long as five years. He finally observed that Gracedale operates on a modified accrual basis of accounting.
Brown unsatisfied. - He characterized Barron's explanation as the same "song and dance" he's presented now three or four times.
The Independent Auditor. - When the county's independent auditor presents, and this can't be soon enough, we'll know whether Brown or Barron is at fault.
McClure should just do all of us a favor and resign! It’s becoming embarrassing for Northampton County.
ReplyDeleteMcClure has been aware, and so has Barron and Zyrinski, that “comingling” funds “ regardless of reason, needs to be accounted for, not just treated like an open use rainy day fix it fund. They need to come clean about who and how many times it has been done. Period.
ReplyDeleteBarron's tries to make light of the fact that the fiscal department UNILATERALLY moves money without council oversight.
ReplyDeleteThats really what this whole thing is about. Procedure. Stevey B completely ignored it (under Lamonts directive no doubt) and in turn the administration misappropriated the money.
There should be consequences for that type of side stepping of the home rule charter and administrative code.
As Ms Zrinkski's audit report claimed, "there was no accurate accounting of the federal monies once it made it into the Gracedale General Fund."
Well isnt that convenient? Once the money was 'appropriated' to bonuses and moved to Gracedale, lazy accounting helped wash the labels from that $15.2 million dollars (laundering) to help it all look the same.
I smell a federal audit coming.
Heads should roll.
Thanks, John Brown, for your unbiased analysis. Politics at its best.
DeleteGracedale, AKA NORCO's Folly seems to cause more problems than any other single thing in the county. Lots of smoke and mirrors from all concerned.
ReplyDeleteThese Gracedale shenanigans will cost McClure in his run for higher office. But then he would fit right in with our lying government.
ReplyDeleteThey both are. The question is was the budget balanced and if so was the proper procedure followed. Barron is right as prior period adjustments are permitted and have been used before to balance budgets. Barron balanced the budget using a prior period adjustment. But, he quessed wrong as the number ended up being larger than he thought it would, and it was “material” to the budget which caused the auditor to flag it. Brown is right to the extent that prior period adjustment can’t be moved if the number is going to be material. I think material is 5% or more of the total budget. The real question for Barron is did you think the number would be material or not at the time the auditor says the budget amendment should have been done ?
ReplyDeleteBrown has no one but himself to blame for all the problems they've created since he became Executive. He raised taxes so high in his last year as Executive that McClure has gotten off with "no Tax Increase budgets" for eight years in a row. McClure even cut taxes last year (a year before he runs for Congress). The Republicans as Executive and as Councilmembers have screwed the employees with a twenty step pay scale that never allows you to get to the top of your scale. Brown is an excellent example of what a County Executive should not be. He is the best thing that ever happened to the Democrats.
ReplyDeleteThis is a serious cope from someone in the administration.
DeleteNonsense to put this on anyone other than the administration.
A question that should be asked by the council of the internal auditors is how many journal entries were made to the financials submitted for audit to get the final product that received the unqualified opinion.
ReplyDeleteThere will always be some journal entries to get the internal financials to the final product. However, if there are a lot of journal entries, especially of the run of the mill operating variety, then that may be an indication to the council that the monthly financials they are receiving are not accurate.
If there are not a lot of journal entries, then that means the monthly financials council are getting are pretty accurate.
I have been reading for months accusations from members of the council that what they are seeing are not accurate or there is two separate books etc, this is the opportunity to ask the external auditors the simple question...are the statements we are receiving from fiscal accurate.
my board asks this question every year of our auditors.
Council doesn't get monthly financials. They are lucky to get quarterlies on time from this administration.
Delete"He noted that the transfers are authorized under an accounting principle known as a prior period adjustment"
ReplyDeleteA "prior period adjustment" is not an accounting principle.
It is a correction of an error or omission from a prior year (prior period) that is made in the current year to make the current year books balance.
The reason that a "prior period adjustment" is rare is that they are in themselves an admission that something is wrong and the financial results were presented incorrectly in the past.
In the context of Gracedale, let's assume for simplicity that we're only talking about a single year (2023), and they underreported expenses in 2023 by $38 million. This would mean that when they're reporting the 2024 activity and results, the fund balance (an equity account on the balance sheet, which includes the net results of operations from all previous years) begins the year being overstated by $38 million.
The only way to correct that is to 1) reissue the prior year reports showing the corrected numbers; or 2) plug the $38 million to a line item on the current year (2024) income statement called "prior period adjustment".
The first way is the correct way to do it, since it would actually show the true (higher) expense numbers or (lower) revenue numbers that resulted in the $38 million shortfall, and would show them in the year they occurred. The second way is the lazy way to do it, and it also serves the purpose of concealing the actual figures for those years since the single line item stating (prior period adjustment) does not show what the differences were or what year(s) they occurred.
Either way, the real numbers for the year(s) in question should be known internally, and should be available for correct presentation. Without having the correct numbers, there is no way that the management of Gracedale, the County Executive, or County Council can make competent decisions (assuming they have that ability to begin with). They'd have no way of comparing current year results to prior results in any meaningful fashion.
A competent Fiscal Director would have already given this information to Council (and the public), and a competent Controller would have been all over this in the first place. Northampton County appears to have neither.
You sound more knowledgeable about accounting than I am. Here is what an online accounting course states: "A prior period adjustment is a transaction used to modify an issue that arose in a prior reporting period. There are actually two types of prior period adjustments. The first is a correction of an error in the financial statements that was reported for a prior period. The second type of prior period adjustment was caused by the realization of the income tax benefits arising from the operating losses of purchased subsidiaries before they were acquired. Since the second situation is both highly specific and rare, a prior period adjustment really applies to just the first item - the correction of an error in the financial statements of a prior period. An error in a financial statement may be caused by mathematical mistakes, mistakes in the application of GAAP or some other accounting framework, or the oversight or misuse of facts that existed at the time the financial statements were prepared."
DeleteSo it is an accounting tool.
The webpage adds: "Investors and creditors tend to view prior period adjustments with deep suspicion, assuming that there was a failure in a company's system of accounting that caused the problem. Consequently, it is best to avoid these adjustments when the amount of the prospective change is immaterial to the results and financial position shown in the company's financial statements."
https://www.accountingtools.com/articles/what-is-a-prior-period-adjustment.html
I believe this prior period adjustment was indeed flagged by the external auditor, who works with the Controller to perform the annual audit. So the controller did its job. And the Fiscal Director said he preferred the budget amendment route but just didn't know the amount needed. I think he probably should have done so anyway.
What disturbs Brown is that Council was not asked to approve the transfer. But what disturbs me even more is that Gracedale is losing money two years in a row. With 10 months of receivables, that should not be that high over two years. One year? Yes. Two years? No. That is why I think a plan for the home's future in the long-term is sorely needed.
This guy gets it! Whats your name, you should run for council! Or better yet, controller.
Deleteif receivables are over two years old, then there needs to be an assessment on the overall conductibility of the receivable....ie...should some of them be written off as you will not collect them and ultimately the loss is greater than what is presented.
DeleteTake a look back particularly at those years with census in the low 400s. Did Gracedale keep all of those empty beds licensed? Probably and that cost money. The use of agency staff and poor management and we were told by McClure that Gracedale was doing well with “no county contribution” needed. Improbable if not impossible. Taxpayers of all parties should be interested in this audit.
ReplyDeleteBernie O'Hare at 9:15 am: 8:26 here again.
ReplyDeleteI can live with a prior period adjustment being called an accounting "tool" or "transaction", but definitely not an "accounting principle" :). The more important point from your source material is that a prior period adjustment should be viewed "with deep suspicion, assuming that there was a failure in a company's system of accounting that caused the problem."
The problem is that while the amount may or may not be considered material to the outside auditors who are looking at the county financials AS A WHOLE, they certainly material to the operation of Gracedale.
For clarification, the financial presentation I mentioned in my first post was showing the prior period adjustment as a single line item on the income statement. The alternative would be to show it as a line item on the balance sheet. But that's how it would be handled internally to make the books balance. In the context of the audited financials, the prior period adjustment gets buried as a footnote in the financials, if it even rises to the level of being material (on the county as a whole). So NOBODY would really even realize that there's even a problem, unless they read the entire 100-plus page financial statement very carefully.
And that's where my comments about the Fiscal Director and the Controller come from. I don't think that ANYONE would be talking about this had council not requested the controller to audit Gracedale in the first place. The Controller certainly should have caught it before that request and reported the problem to Council (and the public).
Some of the issues that have been brought up in prior posts (like a large amount of uncollected receivables) indicate bigger issues when they span multiple years. For instance, I could understand that if receivables are understated by $10 million in Year 1 (on the balance sheet), that skews the revenues (on the income statement) by $10 million in Year 1. But that shouldn't mean that in Year 2 the receivables are understated by $20 million, since you should have collected the Year 1 receivables by then. So there's more to be explained than what I've seen so far.
My suspicion is that neither the Director of Fiscal and the current Controller have a strong accounting background (if any real accounting background at all) and don't really understand basic accounting principles and the differences between accrual and cash basis accounting, or how to make the entries to adjust for that. They are likely reliant on some senior employee in the Fiscal Office who at best makes those entries once a year, or the entries are made by the outside auditors.
Most importantly, for Gracedale they should be able to at least produce comparative, CASH BASIS financials for 2024 and prior years that are restated to include the income and expense effects of the prior period adjustment(s).
Otherwise, they are trying to make decisions for Gracedale based on faulty numbers, which would be like trying to drive to somewhere in Canada using a map of Mexico.
Many valid questions above. Yes, it is time for simple answers without the accounting jargon..
ReplyDeleteYes or no ..why were funds commingled? , who made the decision to commingle? Were any of the transfers documented? Were the funds moved without record? Did oversight come from Barron, or Zyrinski, or Exec? Was the budget balanced improperly by intermingling funds without accountability?